Palestinian Economy in the West Bank on the Brink of Collapse Amid Growing International Neglect

Washington Message

Washington – Said Arikat – 16/6/2026

The economic situation in the occupied West Bank is heading towards an unprecedented stage of deterioration that could lead to a comprehensive collapse, amidst continued strict Israeli restrictions and declining international interest in what is happening outside the circle of war in Gaza. In a striking warning, a new report by the “International Crisis Group” confirmed that the Palestinian economy is no longer facing merely a transient crisis, but is undergoing a process of “systematic dismantling” that affects the foundations upon which any future Palestinian state could be built.

The report paints a grim picture of the economic and social reality in the West Bank, where restrictions on movement and trade intersect with the withholding of tax revenues and the expansion of land control, which has led to the weakening of private companies, the depletion of Palestinian families, and pushed the Palestinian Authority to the brink of complete financial insolvency.

According to the report, Israeli measures are not limited to managing the occupation or imposing security considerations, but reflect a trend aimed at consolidating Israeli control and preventing the emergence of an independent Palestinian state. The report concludes that “the economic conditions necessary for any Palestinian future not based on permanent submission are being rapidly dismantled.”

The study was based on extensive interviews with Palestinian businessmen, mayors, and government officials, which revealed the extent of the pressures facing various economic sectors. Participants pointed to a sharp decline in commercial and investment activity, and increasing difficulties faced by companies in meeting their obligations to employees, suppliers, and contractors.

For decades, the Palestinian economy has suffered from the effects of military occupation and its accompanying barriers, checkpoints, and restrictions on the movement of people and goods. However, conditions have significantly worsened since the outbreak of the Israeli war on Gaza following the October 7, 2023 attack.

After the attack, Israel revoked work permits for most Palestinians who were working inside it, numbering nearly 200,000 workers. While Israeli authorities justified the decision on security grounds, the practical result was depriving the Palestinian economy of about $400 million per month, nearly a quarter of the West Bank's total economic output.

The data in the report indicates that the unemployment rate among Palestinians in the West Bank is about 30 percent, while the economy has experienced a sharp contraction over the past two years. Private sector activity has also declined by about 50 percent compared to before the war, due to strict movement restrictions, supply chain disruptions, and escalating uncertainty.

The report warns that Palestinian society is still resilient, but it lives in a continuous state of impoverishment and depletion. It emphasizes that continuing this path without real solutions will erode hope among the population and increase the likelihood of social explosion, escalating violence, and instability.

The Palestinian Authority is at the heart of this crisis as the largest employer and provider of public services in the West Bank. Government institutions have been forced to borrow increasingly to cover basic expenses, while employees suffer from delayed or reduced salaries, at a time when infrastructure and public services are deteriorating.

Lack of funding has led to a decline in hospitals' ability to provide necessary healthcare, and has also negatively impacted the education sector and municipal services. Water networks and roads are continuously deteriorating, in the absence of sufficient financial resources for maintenance and development.

The Palestinian Authority relies mainly on tax and customs revenues collected by Israel on its behalf, due to its control over crossings and borders. However, the government of Israeli Prime Minister Benjamin Netanyahu has continued to withhold billions of dollars from these revenues and impose unilateral deductions on them. According to the report, the Authority has not received any financial transfers since May 2025, exacerbating the liquidity crisis and threatening its ability to continue.

Joost Hiltermann, Special Advisor for the Middle East and North Africa at the International Crisis Group and author of the report, said in a press statement that the global focus on the war in Gaza over the past two years has obscured the profound transformations taking place in the West Bank. He added that these changes may have a greater impact on the future of Palestinian national aspirations than many of the ongoing military developments in the region.

Hiltermann noted that Israeli officials refused to participate in the preparation of the report, but he pointed out that there are disagreements within the Israeli government itself regarding how to deal with the Palestinian economy. While settler leaders push for more rigidity, some security agencies express concern about the complete collapse of the Palestinian Authority.

Israeli security officials believe that the collapse of the Palestinian Authority or economy will ultimately force Israel to bear the burden of directly administering the West Bank, including civil and economic services, a scenario that carries exorbitant political, security, and economic costs.

The danger of what is happening in the West Bank lies in the fact that the crisis is no longer merely a side effect of the political conflict, but has become a tool that directly affects the future of Palestinian society. When hundreds of thousands of people are deprived of job opportunities and income, and the ability of public institutions to provide basic services declines, this creates fertile ground for despair and social tension. More dangerously, these transformations are taking place amidst a clear decline in international attention, and the preoccupation of major capitals with other wars and crises, which gives the existing reality an opportunity to solidify and turn into a permanent situation that will be difficult to change in the future.

The report highlights a striking paradox: the international community continues to talk about a two-state solution, while the economic and administrative components necessary for a viable Palestinian state are eroding daily. States are not built on political slogans alone; they need a productive economy, capable institutions, and stable financial resources. When these elements are continuously undermined, talk of a political settlement becomes detached from reality. Hence, the current economic crisis not only threatens the Palestinian present but directly impacts the potential for any future political solution.

The crisis also reveals the limits of a purely security approach to managing the conflict. Historical experiences have shown that stability is not achieved through economic restrictions and mass impoverishment, but through providing a political horizon and economic development. With continued decline in living standards, rising unemployment, and deteriorating public services, the likelihood of popular resentment and loss of trust in existing institutions increases. If these trends continue without serious international intervention, the West Bank may face a period of profound instability whose effects will extend beyond Palestinian borders to impact the entire regional landscape.